The Most Important Stock to Watch This Week Is…

All major U.S. indices essentially finished unchanged last week, except for the small-cap Russell 2000, which lost 1.3%. All major indices are still negative for the year except for the broad market S&P 500, which is up less than 1%.

Utilities were the strongest sector last week, up 1.9%. Technology was the weakest, down 0.8%.

In the March 31 Market Outlook, I said that my own metric showed investor assets most aggressively moved into energy and consumer staples, and out of health care. Energy and consumer staples have been the first and third strongest sectors since then, up 4.2% and 1.9% respectively, while health care has been among the weakest, down 1.4%.

Last week, my metric showed that investor assets have most aggressively moved into industrials and out of consumer discretionary.

It’s Sink or Swim Time for Market-Leading Nasdaq 100

In last week’s report, I pointed out an important band of overhead resistance in the Nasdaq 100, from 3,575 to 3,626, and said that this was where the mid-April rebound in the index should fail if it was just a minor rebound within an uncompleted March decline.

The chart below shows that the index traded as high as 3,613 on Thursday before stopping on a dime and collapsing by 2.4% into Friday’s 3,526 low.

This recent sequence of events sets up a critical decision point for the index that is defined by this minor resistance area, which represents the 50% and 61.8% Fibonacci retracements of the March 7 to April 15 decline and the 50-day moving average, and major underlying support at the 3,399 200-day moving average.

If the larger 2013 uptrend in this index, which tends to lead the broader market both higher and lower, is still intact, we are likely to see aggressive buying pressure come into the market at or near 3,399, followed by a rise appreciably back above 3,625. Conversely, a sustained decline below 3,399 would indicate that a peak is in place in this index, and in the broader U.S. market, at the recent highs.

Below is a chart of Google (NASDAQ: GOOG) with a monthly overbought/oversold metric in the lower panel. We are particularly interested in GOOG this week because it comprises about 4.3% of the technology sector and is positively correlated to the Nasdaq 100.

The chart shows that, unlike the Nasdaq 100, GOOG began this week positioned right on top of its 200-day moving average at $ 516, while technically oversold. The green vertical highlights show that previous oversold instances coincided with important bottoms in GOOG in April, September and October.

Per the correlation, we will view GOOG’s reaction to $ 516 support this week as a coincident or leading indication of how the Nasdaq 100 will resolve its “decision area” between 3,625 and 3,399.

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